Thanks for joining us. Welcome to our preview of accounting practices in 2024. You can find the deck supplementing this call on our investor relations website. A replay of this session will also be published there. So as you know, we have been engaged in a continued dialogue with our investors, and, we value their views and feedback. Today, we would like to share some updates on our reporting and financing practices starting in Q1, 2024. Shortly, our CFO, Dominik Asam, and our Chief Accounting Officer, Dr. Christopher Sessar, will share more insight into the upcoming changes. Following their remarks, we'll have time for some Q&A. Please submit your questions to investor@sap.com. You can decide if the question should be read out, stating your name or be anonymous. Before we start, a short safe harbor.
During this call, we'll make forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including, but not limited to, the Risk Factors section of SAP's annual report on Form 20-F for 2022. Non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with IFRS. With that, I would like to turn the call over to you, Dominik.
Thank you, Anthony, and good afternoon here in Central Europe, everyone, and yeah, good day to everyone who is outside that region. First of all, I think Christopher is never kind of very hung up about titles, but his real title is Professor. So yeah, here we are. Most important comment from my side. But thanks for all of you that you have been making yourself available in this season. I know it's kind of the sprint towards the end, and we still wanted to do this call before the season holiday period because we felt that once the Q1 earnings will hit you, you will be very busy, and we really want to make sure that you have enough time to digest what we have here on the plate.
We all know perfectly that, changing certain conventions is always tricky and, not necessarily making your life easier. So we've not taken that lightly at all, but we really wanted to come up with something that's robust for the years to come. There are certain changes in the industry, in the way we run our models, which require really changes, and, we felt we'd rather kind of do this exercise now and take the time to explain, than maybe confronting you later on. So there are, very, very much, changes required to really reflect the strategy we are implementing. So in that vein, I want to highlight this. We'll start with the disclosure for Q1.
Of course, we will also refer in our full-year disclosure to get you some comparables in place as we are moving that into Q1. It will have some implications, of course, on the outlook, because we will guide the outlook as per the new way of reporting, and we'll tie it back to the old way. I can really assure you that all these updates are purely driven by the commercial strategy and trying to really get you an easy-to-understand model that makes our growth trajectory transparent and also our financial model more transparent and easier to understand. So bear with us for the explanation, and hopefully after the session, you, you, you will agree. So going into the details, the first one is on stock-based compensation.
Yes, we have gotten a lot of comments about the stock-based compensation heavily increasing, and you've seen here on this chart on the right bottom how it has evolved. Basically, it was more than doubling from 2020 to 2021. If you strip out Qualtrics, it was about doubling too, where there's also another adder on Qualtrics, which is included in these numbers. You know, we have deconsolidated Qualtrics, and I want to remind you of the guidance we've given for this year, that we said we will have stock-based compensation somewhere between EUR 2 billion-EUR 2.25 billion, to put things into perspective.
Obviously, it made a lot of sense to eliminate the stock-based compensation from our numbers because it has been highly volatile, also due to the fact it was cash settled, and therefore it induced the volatility, which we didn't want to have as a pollution in our financial results. Also, we are acutely aware of the fact there are still a lot of competitors who are excluding stock-based compensation, but we think economically it's not the right thing to do. We want to really steer the company based on a fully loaded personnel expense line, including stock-based compensation and on a granular way.
So, when you then do mathematics in terms of what is the cost of something you deliver versus what you charge to the customer, it doesn't really help if the stock-based compensation is something that we put all the way below the line, and that's one thing. The other thing is we also benchmark, and of course the highest quality names in the industry have already embarked on a journey to embark the stock-based compensation in the P&L. So, we feel that the transparency we give in terms of really a financial number that makes economically more sense is the important direction to take here.
We believe that, from all the discussions we had, investors, given that we give you the ability to show both, both worlds, pre and post, we will continue that transparency, so we'll not have any loss of transparency on that front, but, we think the default view should be post, on that, cut. On the fund manager side, I think we got a lot of feedback on that. Some said they like it, some said, "Well, be careful because of the benchmarking." We are ultimately convinced that the bottom view, including stock-based compensation, as in so many other industries, will ultimately prevail. Because those who ignore the economic impact of stock-based compensation will ultimately lose out, because it is actually a very material topic.
Again, for this year, EUR 2 billion-EUR 2.25 billion guidance. So I think we can agree that on a EUR 17 billion personnel expense that was last year, it's a very significant number. Now, second topic I wanna present here is, the volatility induced by Sapphire Ventures, basically the mark to market, in our non-IFRS results. And here you see, on the bottom of the page, on the right-hand side, how the results of Sapphire Ventures have evolved. And obviously, it has been a huge swing at the tune of, EUR 3 .5 billion , basically, from 2021 to 2022.
And while it was nice to kind of benefit from the ramp-up of that portfolio in 2017 through 2021, of course, it was something we had to explain again and again, and it's really kind of blurring the view on our real net income, the bottom line. So for non-IFRS reasons, we would like to exclude that going forward, to come up with a clean, kind of, non-IFRS, net income number and EPS. The way we think about that kind of portfolio is more as a, as a kind of reconciliation item between the enterprise value, which should be based on the, free cash flow of our operations. Then there's, of course, our net cash position, to come down to, the equity value, but there's also the value of our portfolio.
Of course, we do our very best, especially the gentleman here on my left-hand side, to make sure it's a fair mark to market of the value. But we don't see that this should be affected by any multiple or anything, but should be rather taken into account on the bridge from the enterprise value down to the equity value. And on that front, I mean, we had a very, very strong uniform view of our investors and, and everyone we talked to that it might make sense to do that. So that's the second. Now, there's another thing which sometimes made our life a little bit more complicated, which is that we had not been on smaller divestitures, separating the gains or the losses on divestitures and brought them below the line, so to speak.
And that made the kind of year-on-year growth of our Non-IFRS operating profit quite complicated. And then in every meeting, we were sitting there and said, "Yeah, but there is a seasonality." You recall the story about Q4. Q4 earnings growth will be much lower because we basically last year had a big, well, a big, what was it? EUR 100 million-ish gain on Litmos divestiture, and we felt this is a housekeeping item we should also clean up. I wanna highlight, though, that this doesn't mean that we restate now all the financials, like revenues and EBIT on a recurring basis.
We do that, of course, for larger discontinued operations, so we still have a debate about, well, there might be some smaller tuck-ins or divestitures which kind of make the year-on-year comparison on revenues and operating profits a little bit more complicated. But at least on the bottom line, on the famous year-on-year growth of operating profit, non-IFRS operating profit, to be precise, it really matters to have a clean, and we decided going forward to take that out. Fourth topic is the famous SAP-triggered financing. We clearly wanna alert you to the fact that once our free cash flow guidance for 2024 will be published on January 24th, please watch the fine print on what is in there, because of basically getting out of that scheme.
We didn't wanna continue it this year because this is how Luka has guided the year, and I feel that we wanna really make an apples-to-apples comparison. I want to avoid confusion about the real underlying cash performance and really make sure it's on a kind of unpolluted number. So that means we cannot kind of bring it down as we speak. Next year, we really wanna tackle this. So what we will communicate is, of course, the free cash flow guidance, plus what is the headwind to be digested at that point in time, remain to do, so to speak, on 2024. Again, I wanna remind you, there's two different types of SAP vendor financing. One is a real vendor financing, which is basically customer-triggered financing.
This is very much around software, where, when we sold licenses and there was a big upfront financing requirement, the customer asked us to find some vendor financing solution, and this will continue. But as the license revenues will decline, of course, that bucket will also become smaller over time. And then there is the kind of sale of normal receivables, and they can, of course, also be from maintenance, or they can be from other trades, like a cloud business. And there, frankly, it has been more a short-term measure over the turn of the year. Had put some burden on, actually, this year, unless we do repeat it at end of the year. So we decided to keep it comparable and do that. But 2024, come 2024, we will need to embark it.
Of course, we will let you know on 24th of January what the precise numbers are. It's just a kind of call-out. So, please look at this, this kind of fine print, when you look at the free cash flow guidance for next year. Now, moving on to the next slide, please. Well, Sorry. Yeah. Now, this is the most interesting one, and from my perspective, really, really important. If you look at our S/4 offering and the platform as a service offering, there's a couple of observations I wanna share on that. First of all, the S/4HANA Cloud revenues are really a very, very small part of our cloud revenues.
You've seen the disclosure separately, and they've been growing at a very, or they continue to grow at a very, very high rate, as you will see also in Q4. On the other side, we have a platform as a service business, and there, we have, of course, the BTP in there, but we have also tools like Signavio in there. Also very nice growth. Now, the issue with this is that basically, what you have in the sum of the two, S/4HANA Cloud and PaaS, is a little bit what we call the so-called, lending, yeah, which is the first step in the transformation journey, and it's not really reflecting the expanding.
I think with the numbers we've shown so far, the fact that we are not having a problem, that the S/4 product can go to cloud is really evidenced. We really want to make sure that we now show the full potential of the business and have a larger revenue base under that kind of narrow definition of what is the kind of best cholesterol, so to speak, in our portfolio. It's really the stuff that is doing the lion's share of our growth engine, of the growth drive, and maybe I move to the next page to explain that in a little more detail. I think you're all familiar about this, this rising sun type of yeah symbol here, where you have the kind of cloud ERP, the S/4, and the business technology as a platform.
And then we have the lines of business, and, interestingly, if you look back at, how we've sold them, these lines of businesses in the past, in the old ECC world, there was already a high degree of bundling in there, and now we've basically kind of fragmented that or segregated that into different buckets. And, what we really want to focus on is also make you aware of the opportunity, to expand and really come to a larger portion of the revenues, where we can demonstrate quarter after quarter, a very, very high growth rate, yeah. Rather than just picking, as an exemplary, so to speak, the S/4, which is certainly the fastest-growing part, well, at least in the software service. And now, why does it make a lot of sense to do that?
This is, I think, best evidenced on that page. On the left-hand side, you see the way we've reported in the past, yeah, or so far, and we'll still continue to do so in Q4. We have infrastructure as a service business. By the way, you've seen that this was strongly declining. I think in Q3, it has a contribution to the cloud revenues of nearly 5.4%. So this thing will become smaller and smaller and marginalized anyhow. And then we have a platform as a service business and a software as a service business. And we have a couple of trends that are strategically important, which make that separation a little bit artificial.
First of all, and you see already, if you look at the S/4HANA Cloud definition, there is a little bit of PaaS included, so it was not a clear-cut subset of the SaaS business only. And on top of that, frankly, in real business, we have a strong convergence in terms of how we sell that stuff to the customer. So it's really bundling ongoing. So if you look at the Cloud Enterprise Agreements, where we have credits for BTP, and now if you put the artificial intelligence layer on top, which will connect dots in all these areas of SaaS and PaaS together, it's really becoming more of an allocation game, an artificial allocation game to what is S/4, what is a line of business, what is PaaS, what is SaaS?
And, I think it doesn't do service to the real growth story we can show. So we thought about what is the real story we want to tell, and we think we have very, very good data to share with you once we go through that transition. It is that we basically have a infrastructure as a service business, which is declining, and it's fading. It's becoming less and less material, so that's easy.
Now, you've seen us already kind of combining SaaS and PaaS, where we said, "Well, if you take infrastructure as a service out, we have a 26% constant currency growth in Q3 on the combination of SaaS and PaaS." Now, that's a good first step, but the truth is that if you then go one level deeper in that kind of bundle, there is what we call Cloud ERP suite, which is really, I'd say, to characterize it very, very roughly, everything that's transactional and very close to our core, which cross-sells extremely well, where the artificial intelligence use cases will be very much about connecting these dots. And while we say SaaS, PaaS together grows at 26%, as soon as we introduce that metric, we can show you that this kind of Cloud ERP suite, not surprisingly, grows much faster than that.
And there, we have a similar effect than in the kind of infrastructure as a service discussion. You will see that basically, we are bifurcating that kind of SaaS, PaaS business into, a core, which is super solid, super healthy, growing faster than the 26% of the combined SaaS, PaaS business, way faster, having higher margins. And that's something I tell you now, we're not going to go into segment reporting on that level in terms of margin, but, it's very solid. Whereas we have another part of the business, and you guys have already pointed out to that, where we actually don't see so much growth.
But this is not kind of a general rule that everything in there is slower, but we have to really dissect what's outside S/4HANA in Cloud ERP suite, that's growing actually quite healthy, and what's really even outside Cloud ERP suite, which is not growing much, frankly. I mean, we talk about a number which is probably low- to low-mid single-digit. You have pointed to that, and of course, it raises the fair question: What are we actually going to do with SaaS, PaaS outside Cloud ERP suite? There is not one single answer to that. It will be a very differentiated analysis product by product, what are the opportunities? But what is clear, that we want to bring also the other businesses to a reasonable growth level and reasonable profitability level.
By the way, also, if you look at the SaaS, PaaS outside Cloud ERP suite, it's lagging in terms of profitability by a big margin. So what you see here is kind of the acknowledgment of the management team to say, "We want to manage that. There's something we need to do with this." Now, what exactly it means will come kind of gradually over time. And then the more important message, the even more important message is, if you look at this Cloud ERP suite, growth, and strength in terms of driving the cloud revenue, you will see that's kind of a theoretical asymptotic growth you can reach. Because if you assume that, what's outside there is growing more slowly, over time, also, that will become more and more marginal in the mix.
So we want to clearly highlight that effect, that there is kind of a pull, and the trend is really our friend towards convergence to the Cloud ERP suite margin over time. Sorry, growth. Cloud ERP suite growth over time. And there, I don't want to be understood that we will kind of continue to grow this Cloud ERP suite forever at these high margins, high growth rates we are going to show. But what the math will show you, if you extrapolate on that granularity, as you see on the right-hand side, as opposed to taking the entire SaaS business and/or taking the entire even cloud business, you'll come to higher growth numbers. So it means that we can actually afford even a slight deceleration in Cloud ERP suite growth while still accelerating on the overall, cloud business.
And we really think it's super important to drive that point home, and this is why we decided to do that. So the combination of more and more complicated discussions as to what's in SaaS, what's in PaaS. Think about a company like Signavio. The Signavio is an extremely important piece of our platform. It can also be considered a software as a service from the kind of customer point of view. Think about LeanIX acquisition. That will also go into PaaS or SaaS. We had long discussions in the executive board and said, "Well, if we can't even kind of clearly allocate ourselves, how should our accountants do that?" And then you have also the convergence in terms of commercial bundles.
We are deeply convinced that what we really have to drive is the Cloud ERP suite commercial bundle, to deliver integrated use cases here for the customer. We see some great traction on that front, and we really want to share that, with our investors. So I want to stop here because I trust you might have quite some questions on this, and open it up for a discussion with you. Thank you.
Thanks, Dominik, and, indeed, we have already a few questions coming in, and, the first one is related to, what you just explained. So I, I read it. It's: Thanks for providing us with this heads-up. A quick one on S/4 Cloud. Growth has been very strong so far, like you said. Is it correct you will not disclose this anymore?
Yeah. I mean, indeed, the S/4HANA growth numbers have been very impressive, and I think it was a very fair point to highlight them, because over the last years or three weeks, three years back, there was even a discussion, can you bring a product like S/4HANA on the cloud? And I think we were really in the kind of need to demonstrate this is working. What is now the more important view for us is to give you some feeling about how the long-term trend line growth of our integrated Cloud ERP suite should end up. And for that, frankly, the S/4HANA is not big enough yet in the mix to give you that kind of asymptotic level of growth.
We really want to focus investors on that number and say: Look, quarter by quarter, we deliver a certain number for the Cloud ERP suite, and it's way better than competition, and we really want to stick it into your face, and this is what you should focus on. It's our job to make sure that we hit that number. Whether it's now 1% or 5% more or less on S/4HANA or on the upsell and cross-sell, that's not the issue. I mean, the traction, I think, of S/4HANA has been huge. BTP attach rates are extremely healthy. I think that story is clearly driven home. So we don't, frankly, see the benefit of being super granular.
And then comes on top of that, the fact that we really have accounting challenges and moving, because of the bundling of products, because of the credits we give in these bundles on other products. I mean, we have completely dysfunctional debates like, can I now bundle some analytics cloud into our, cloud enterprise application offering? Because if I do that, I might exceed a certain materiality threshold and then not, not, not have a clear disclosure anymore. So we don't want to be tied by that. We want to really deliver on that entire suite, a ver- a kind of, by far, industry-leading, growth, and be measured against that. So the answer is, yeah, we are not going to continue that disclosure.
But for Q4, we will show it to you, so you have the confidence that we're not stalling at all on that one.
Very good. So the next question we have is from Michael Briest of UBS, but the one is related to stock-based compensation.
So what is the outlook for growth in stock-based compensation expenses beyond 2023? Luka Mucic at some point talked of it growing in absolute terms, but declining as a proportion of sales. So can you say something about that?
You want to have a step, Christopher, and then I-
Yeah, I can start. So, maybe first of all, because I think this is also a very important point, the question may come up: To what extent are we still providing full transparency about our share-based compensation actuals, right? And we have decided also to make it easier for our readers of financial statements and analysts to still continue provide share-based compensation actuals also for our functional areas. Which basically does put you into the position to also benchmark us against our peers, because, as said, even though we don't have to, as per regulation anymore, provide the reconciliation from non-IFRS to IFRS, the actuals will still be provided even on a functional level, which enables you to do such kind of a comparison.
So as far as the 2024 outlook is considered, to be very frank, we haven't yet finally decided on whether we will also continue with an outlook on share-based compensation and will provide that. This is something which we are still looking into, and at that point in time, Dominik, I don't know if you want to chime in?
Yeah, I mean, I think what is clear is we will need to reflect the inclusion of stock-based compensation-
Yeah
on the 2025 ambition. So, and you mentioned some guidance Luka has given, and I can clearly confirm that. I mean, I think the consensus for 2025 is at EUR 2.4 billion, yeah. I mean, we really try our, very, very best to contain, the growth of stock-based compensation. But bear with us for the ambition update, and in the ambition update, we will give you a stock-based compensation number for 2025, which is the assumption there. And I think, I would lean for today, to give you some details also on 2024, but let's, let's come to that on the 24th of January. But I, I wanna really make clear, how we come from the old world into the new world.
I have to give you some transparency, so you can rest assured that we are not letting some profits disappear here, to the contrary. I mean, we really wanna show you the fully loaded impact, and that means we have to disclose a number for 2025. And as you know, there's always the residual volatility from our share price. So perversely, the better our share price performs, the higher that number will be. But we have to make some assumptions on that front. And luckily, one reason why we could actually now change the methodology is that we have decided to do the equity settlement, which allows us to not mark to market the stock-based compensation every quarter.
So with that, that volatility is very much contained, and maybe we can find also some ways to hedge it further. And then you should have a good view. But I don't see from what you mentioned in terms of the guidance Luka gave and what the capital markets consensus is, that stock-based compensation in that bridge in 2025 should be any surprise.
All right. So I have a couple of questions which are both related to the Cloud ERP suite. So the first one is from Nay Soe Naing of Berenberg, and it's the question is:
Will you provide historical growth for Cloud ERP suite and a list of products that will fall under that?
Yeah. I mean, of course, we have to tell you what's in there and what's not. Very, very roughly speaking, I mean, when I try to find a common denominator, it's kind of real transactional stuff, where you can have AI use cases on top of it versus there are other cases. I give you something that's clearly not in there. It's like learning in human experience management. There's also some aspects of marketing which are not in there. So basically, as soon as we are transactional in the flow of people-- For instance, onboarding people is clearly in there, yeah? I mean, if you want to delete access rights of people leaving, that's a hugely important topic also for finance, for SOX controls and so forth. That's very synergetic.
But if it's really about, yeah, as I mentioned, learning, where it's about training people, where there's a lot of fragmentation in the market, it's further away from our core, and this is the type of logic that's behind. So yes, you will have a clear indication what's in there, what's out there. And yes, I think we should deliver you some comparisons. What we are still evaluating is whether we do that Q1 or whether we do it end of the year. It's more a question of when it's available. We try to do it as early as possible. And I'm pretty confident you will like what you see, because you'll see a nice trend in these numbers. And we felt that's exactly the reason why we want to show it, because we are really proud of that machine, yeah?
That Cloud ERP suite is really running smoothly and is generating extremely high growth and is very profitable. Now, given the kind of segment reporting challenges, we also said that we're not going to report gross margins by IaaS, PaaS, SaaS anymore. And I think that's clear if you heard me talk about revenue allocation already being quite of, kind of, more and more artificial as we want to bundle more. And maybe I should spend a minute on why is it so important to bundle. I mean, our customers are entering into these cloud journeys for sometimes five to seven years, and honestly, they are not extremely clear on what is their consumption of the different products.
So we deem it to be a huge competitive advantage that we can go to the customer and say, "I'll give you some credits here, and yes, you can use them as for BTP, Signavio, LeanIX. And if you, at some point in time, feel you underconsume on something, you can swap it with something else." That's something very few can do in this business to the extent we can, and the customers really appreciate that capability. And now you will also understand then, in such a scenario, trying to now spend tons of money on artificially allocating revenues back and forth will be not really creating value for shareholders and for customers. And, I think we will still demonstrate, of course, the gross profit on the cloud revenues, and you will see the progression there.
But this level of granularity is simply more driven by allocation keys as we move forward. And the same is true when we talk about these famous artificial intelligence credits in our premium bundles. I mean, how do you allocate something between PaaS and SaaS? You use a SaaS product, but it's built on PaaS. And again, we see quite clearly, BTP is the platform to enable artificial intelligence for us, so it becomes really difficult on the revenues and as a consequence, also on the gross margin. So we will show these numbers on the group, or sorry, on the cloud level only.
Thank you, Dominic. Shifting gears now, there's one question from Ben Castillo of BNP Paribas, related to the free cash flow topic. I think it's a clarification.
You mentioned two components of free cash flow: vendor financing and sales receivables.
Yeah.
Do you plan to adjust both components or just the latter?
No, just the latter, the sales of ordinary receivables. Why? Because, of course, we want to continue to deliver that kind of vendor financing. It's like a car manufacturer. You know, when somebody buys a car and this contract is on a lease, you basically do vendor financing. And, and you know that in our software model, we have a big upfront payment, for the license, and, and some customers, prefer to spread the financial burden of that in terms of cash flow. And then, we kind of transfer these, vendor financing contracts to suppliers. So, that has been done for a long time here at SAP. And, as a small anecdote, I've actually done that as a CEO of a financial services business, which was doing vendor financing for SAP a long time ago.
So it's not something that is a new or tactical thing. It's really a normal kind of vendor financing relationship. On the other hand, as the license income comes down, of course, that activity will also go down, but this is not of a magnitude that should cause any concern at all.
Now talking of magnitude, I mean, one question from Frederic Boulan of Bank of America:
Can you quantify the negative one-off associated with change in financing in 2024?
Yeah. I mean, I understand that Luka told you guys that we talk about a kind of low- to mid-triple-digit million-EUR amount. I can confirm that. I will give you more details in on the announcement, because there's, of course... I mean, let's face it, if we might not end up exactly the same number in the prior year, so I really want to kind of do the full calculation, do it, get it done. Sometimes, some receivables are sent back by the bank, and then I'll tell you, but there will be no surprise. I mean, honestly, if we can get rid of some already before year-end, because we have some room in the cash flow, I would even do that.
I hope to keep it as small as possible, but it will be a double-digit million amount, but not beyond what Luka has indicated. I'll give you a precise number when we do that.
Thank you. There is one question from Charlie Brennan of Jefferies.
I know you made some changes to the amortization of sales commission in Q3. Did you consider any further changes as part of this accounting review?
Well, we looked at everything, basically, because we know you have a right to have stable, consistent data over time, and we know if we do that to you once, we shouldn't kind of salami slice and come with something else soon. Now, it can always be that sometimes we have really algorithmic formulas to determine certain accounting policies, and then if the data changes, we might need to adjust, yeah. But in terms of really changing in terms of methodology in a discontinuity-like way, and by the way, here, we're not really changing accounting policies.
Mm.
It's more Non-IFRS reporting, yeah. So it's more the way we are kind of communicating the operational performance of the company to you. So I'm not foreseeing any major changes on that front. I mean, there's nothing major, it's just the ordinary application of our steady accounting rules. And here was a little bit, I think, on this commission topic, it was a little bit of a pent-up topic because of the maintenance, which is, as you know, in a slower growth, if not declining models, because of our very rigorous stance on not prolonging the maintenance windows. So there is a kind of deadline looming, and that was then embarked. So I'm not foreseeing anything of that nature anytime soon.
Yeah, and maybe just very brief, I think, as far as the capitalized sales commissions are considered, there's mainly two drivers of that. One is the capitalized sales commissions, which result from our software contracts. And this is an analysis which we performed in Q3, as we do every year on an annual basis. And the result you have been referring to, which was the reduction of the expected lifetime. As far as cloud, which is the second component, is considered, I can tell you that there clearly is no change in regards to the expected lifetime. So no similar result from that. So those numbers are very, very robust.
Very good. Looking up if we have any... Yeah, so maybe one last clarification also. It's related again to the Cloud ERP suite, and it's a question from Ted Wong of Millennium.
Does that impact the CCB figure, the introduction of the Cloud ERP suite? Does that change anything on our CCB figure?
No.
And will you continue to report S/4HANA CCB figures.
I think this goes back to-
Yeah.
My question.
No, no, no. I mean, that's, I mean, as we are not going to continue the cloud revenue, number for S/4, we're not going to go to the CCB number for S/4HANA either. We are going to, of course, continue to report the overall cloud CCB. Now, honestly, I think we have a super, almost overdetermined system to give you some triangulation opportunities of revenues. Now, come 24th of January, you will have a guidance for 2024, on cloud revenues. You will have an ambition, for 2025. We've communicated that, and of course, we will, kind of voice, some views on that, in that call, too. You have the CCB for the cloud, so you can triangulate that. We give you some indications on what's transactional revenues, and these numbers fit together very, very nicely.
So, we think that on that group level, the cloud revenue projection into the coming year is not such a big secret anymore, frankly. Now, we really want to send that signal, what matters is the continuation of the growth trajectory. By virtue of what you're going to see in terms of quarterly performance on cloud revenue growth in Cloud ERP suite, we think we have very compelling data to give you confidence about the trajectory and the future view. I mean, frankly, why I was so excited about this new way of showing the cloud revenue performance is simply a stupid exercise with a spreadsheet, yeah?
You take 23% cloud revenue growth, and you extrapolate that for five years and say, "What's the number after five years?" And you now will use the segmentation I gave you, which is basically SaaS, PaaS combined, sliced by Cloud ERP suite with a certain growth rate. The rest of it, again, all together growing already at 26%, because if you back out the infrastructure and service... And then you will see that actually, the Cloud ERP suite is actually growing significantly faster than that, and you will see it's a huge part of the revenues. And that's the message I really want to focus on, that you can see how are we executing on the land and expand strategy.
I don't want to be handcuffed in terms of bundling commercially, putting the AI in. I just want to drive that number as hard as we can and deliver quarter by quarter on that. And then you still have the CCB to plausi-check that the engine is not stalling, yeah? You will see that there is good momentum in that, and I think then you have really confidence. And as I said, we will guide them for a year anyhow, going forward. And we think with the combination of these data points, I hope you will still, hopefully, I can say, preserve the view that this Cloud ERP suite is a strong growth engine.
Let's not forget that a good part of that very high growth right now is the convergence of, for instance, the ECC customers, which are running out of maintenance. And by the way, if you look at the product, ECC, it used to be, it was also a very bundled product. So in some way, we became artificially narrow with the S/4, and I think for a good reason, because back then there was even a doubt, can this be on cloud? I think we have enough data points now to demonstrate that, but it's too small a part of the revenue base to show you the beauty, so to speak, of the entire growth engine we have. And it also, frankly, puts some highlight.
It's also the acknowledgment, yes, we have also something outside there, which is actually not growing much and which we need to take care of in some way, yeah? So we also want--don't want to be defensive and explain it's all good, and we keep all that, and it's, we don't change anything. We will need to find ways to either massively accelerate growth in these areas or do something else. But it's also the acknowledgment of management team, we have to do more rigorous portfolio management. So these are the two messages I want to leave here, kind of, showing these different buckets, and giving you the confidence and transparency you need, to make sure that you see why this is a very strong, growth engine we have here.
Very good. I have one question that just came in, Dominik, and it's related again to maybe one clarification around the free cash flow.
Is it correct to say that the 2025 free cash flow target of EUR 7.5 billion remains unchanged after stopping the sale of receivables? In other words, is it impacting 2025 ambition?
Basically, yes. I mean, we always said that 2025 free cash flow is unaffected by any kind of normalization of factoring activities. So it is what it is. No change to that guidance.
Very good. We have no other incoming question. Any final remarks you want to share with the audience, Dominik, before we close?
No, I just want to encourage you, in case there's any questions left, I mean, this is why we front-loaded this call. It's really that if you have any questions, please, reach out to investor relations, get all the details, because we hope that then, come Q1 and the announcement on the 24th, it's like a walk in the park for you to understand what you're seeing. And I hope that's easier for you than if we had kind of swamped you with all that, together with the great content of Q4 we are going to share with you, which is, of course, already a big task to digest and understand, and the outlook. I mean, Q1, i.e., the disclosure on24th of January, is heavy. It has the Q4, which is the heaviest quarter of the company.
It has the outlook in there. So we really want to make sure that we get the technicalities of that change out of the way. And, yeah, we are here, and then, I mean, Christopher and team have to close the books anyhow. So, you will have the support you need, to make sure that, no question is unanswered on that topic, before we go to the disclosure on the 24th of January. And I'm looking forward to talking to as many of you as possible on that call.
All right. Thank you, Dominik. Thank you, Christopher. Thanks for doing that, and thanks, thanks to all of you for joining us. Have a good day. Bye for now.
Bye-bye.